Debts to public bodies: are Government debt collection practices outdated?

There is growing concern that the debt collection practices of public sector bodies have fallen behind the standard of regulated creditors in the private sector. Practices have often been criticised as being unfair to the debtor and inefficient, possibly resulting in higher long-term costs to the taxpayer.

This is an increasingly important topic because debts owed to public sector bodies (for example, as a result of benefit overpayments, penalties or fines, and council tax or rent arrears[1]) have been growing in recent years – both in total value and as a proportion of cases dealt with by debt advice charities:

• In 2014-15, the total value of money owed to public sector bodies across key types of debt was £13.9 billion. At the end of the 2019-20 financial year, this is estimated to have risen to £16.1 billion.
• In 2010-11, 21 per cent of debt problems reported to Citizens Advice advisers were related to debts owed to public bodies. By 2018-19, this had increased to 42 per cent.

The impact of the coronavirus pandemic on debts owed to public bodies is not yet known, but it is likely to have led to further indebtedness.  Citizens Advice, for example, estimate that as many as 1.3 million households fell into council tax arrears in the first three months of the crisis.

A range of criticisms have been made about the Government’s debt collection practices, with the Treasury Select Committee concluding in 2018 that public bodies are “often found to be the most zealous and unsympathetic of creditors in collecting arrears”.

More recently, in June 2020, Baroness Morgan of Cotes wrote that: “Regrettably, the public sector continues to lag behind. Despite glimmers of progress, the Committee’s verdict in 2018 that the public sector was ‘worst in class’ for debt collection remains sadly accurate.”

More specific criticisms of the way in which public sector bodies collect debts include:

• The rapid escalation of debts (e.g. a debtor becoming liable for his/her entire annual council tax bill within two weeks of receiving the first reminder of a missed payment).
• Imprisonment for non-payment of council tax debt.
• Reliance on the use of enforcement agents (bailiffs).
• Short-term incentives within public sector bodies causing more aggressive collection practices, especially towards the end of the financial year.
• Inconsistent practices when assessing the affordability of repayments and when dealing with vulnerable individuals in debt.
• Lack of data-sharing or joined-up approach across public sector bodies in respect of individuals in debt.
• Instances of ‘unfair’ treatment of those in debt and the use of poor practices in comparison to other creditors.

Overall, there is concern that, collectively, these issues may result in a lower likelihood of an individual escaping problem debt, lower likelihood of the taxpayer recovering the money owed, and higher likelihood of negative ‘downstream’ effects on the mental health, relationships and productivity of the individual in debt and their families.

The Debt Management Function (in the Cabinet Office) published a Call for Evidence on fairness in Government debt management in June 2020. This points to the various actions that Government has taken in recent years, but recognises that more can be done.

Actions taken to date include:

• Transferring regulation of consumer credit to the Financial Conduct Authority (FCA) in 2014, which has introduced rules to improve debt collection practices in that market.
• Reform of the bailiff industry in 2014, including an update of guidance on bailiffs’ ethical and professional duties.
• Establishment of a ‘Debt Market Integrator’, which enables public bodies to access FCA-regulated debt collection agencies.
• Publication of the ‘Fairness Principles’ as part of the code of practice within the Digital Economy Act 2017 to encourage the sharing of information about an individual’s debt history.
• Individual Government departments have also taken steps to improve collection practices, such as offering more tailored payment arrangements and improved identification and support for vulnerable individuals.

The Cabinet Office’s call for evidence – which invites organisations and individuals to submit evidence on the ways in which public bodies can improve their debt collection practices – closes on 21 September 2020.

‘Fairness’ remains a key question for public sector bodies, with the Cabinet Office recognising that those who can afford to repay their debt should do so. As such debts represent money owed to the taxpayer and this money is used to fund public services, public bodies are conscious that proportionate enforcement responses are taken against those who could pay but choose not to.

Several recommendations for improving public sector debt collection practices have been made.

The Centre for Social Justice’s report published in April 2020, entitled ‘Collecting Dust’, summarises many of these and builds on recommendations made previously by debt advice agencies, the National Audit Office and the Treasury Select Committee. The report’s recommendations include:

• Introduction of a Government Debt Management Bill, which would bring the Cabinet Office’s ‘Fairness Principles’ (currently in the Digital Economy Act 2017’s Code of Practice) onto a statutory footing, establish a centralised debt aggregator within the Cabinet Office to give a ‘single customer’ view of all debts owed by an individual to public bodies, and ensure more consistency about public bodies through the use of the Standard Financial Statement and published policies for dealing with those in vulnerable situations.
• Amendments to council tax regulations which would remove the (England-only) sanction of imprisonment for non-payment of council tax debt, end rules that make individuals quickly liable for an entire year’s payments after one missed instalment, and bring good practice guidelines for council tax collection practices onto a statutory footing.
• Introduction of independent bailiff regulation to ensure that enforcement agents are held to account where they employ unfair or disproportionate practices.
• Changes to recovery of debt via Universal Credit deductions to ensure that benefit claimants are not chased for ‘historical’ debts and that – where debts are repaid via benefit deductions – affordability assessments are introduced to ensure that deductions are not unaffordable for the claimant.